15. November 2011

In recent weeks, risk premia have risen sharply across all segments of European financial markets as a result of the euro-are sovereign debt crisis. This has been associated with exchange rate depreciation in the countries of Central and Eastern Europe. Countries accumulating excessive debt must implement fiscal austerity measures and undertake rapid adjustment associated with a curtailment of domestic demand. In Hungary, this process has been underway for several years. Consequently, Hungary is ahead of those countries that are just about to take painful decisions to rebalance the government budget. Hungary’s current account and net financing capacity have been in persistent substantial surplus, due to significant growth in domestic savings. The Government has strongly committed itself to keeping the fiscal deficit below the 3 per cent target. The country’s sound fiscal and external positions create room to reduce its debt. In the Monetary Council’s view, therefore, the spillover of concerns over the sustainability of government debt in the euro area to the Hungarian economy and their downward pressure on the forint exchange rate are unjustified.
Monetary policy can contribute to the economic recovery and to creating an economic environment favouring investments and job creation by maintaining predictability and ensuring the stability of prices and the financial system.

In the Monetary Council’s judgement, the recent depreciation of the forint has been inconsistent with the fundamentals of the Hungarian economy.
Exchange rate depreciation is leading to a deterioration in the outlook for inflation and increasing the pressure on economic agents to adjust their balance sheets.
If the increase in risk aversion in European financial markets persists, it may prove necessary to tighten monetary conditions gradually.

Monetary Council